First, I thank all noble Lords who have contributed to what I thought was a very interesting and informative debate. The points raised have highlighted the importance of the measures being extended by these regulations and the necessity of extending them so that many businesses can continue to benefit from them. Over the past year, businesses have faced an exceptionally challenging time, with many unable to trade or having had their ability to trade at full capacity restricted due to social distancing measures.
My noble friend Lord Bourne asked how many moratoria there have been to date. The answer is four. This relatively low number is a direct result of the decisive government action to support the economy through the worst of Covid-19’s economic impact, which has helped many businesses and saved jobs. These measures have meant that there has been somewhat suppressed demand to date for the moratorium. It should be noted that there have also been far fewer corporate insolvencies in this period; for example, government statistics show that corporate company insolvencies in March 2021 were 86% down on the same month last year—as I say that, there is a clap of thunder; I hope that is not a sign of impending doom.
As the economy begins to emerge from the pandemic, it is of course sad to report that we expect the moratorium to be used more frequently. It will be subject to review to ensure that it works as intended no more than three years from Royal Assent of the Act.
On the different end dates my noble friend asked about, the Government recognise that these measures have a significant impact on the normal working of insolvency legislation and the rights of creditors; it is therefore right that they are not extended for longer than needed. The temporary provisions for moratoria in Schedule 4 are extended to 30 September because the consent of the Scottish Government may be required to implement replacement permanent rules for Scotland, as some aspects of corporate insolvency are devolved. Users have told us that when rules in both England and Wales and Scotland change, they prefer the rules to come into force in both jurisdictions at the same time. An extension of six months will therefore aid this process.
My noble friend also asked whom we consulted. We have engaged with major trade representatives including the Institute of Directors, R3, major restructuring firms and insolvency practitioners. There are too many to list now but I can write to my noble friend if he wishes to have a list.
My noble friend Lord Bourne also asked why we have singled out wrongful trading for these measures. Representatives have made it clear that wrongful trading is a strong deterrent to continued trading, and many responsible directors will cause companies to cease trading rather than risk the threat of future personal liability, with the impact that this could have on the lives of directors and their families and all it entails. As with all these measures, we will keep the need for them under constant review and act swiftly if evidence demonstrates a need to extend them further or turn them off.
My noble friend Lord Leigh asked about the Government’s approach to mounting levels of corporate debt in the economy. While many firms have been hit hard by the pandemic, government support has ensured that the corporate sector has remained resilient, with the increase in indebtedness matched by an increase in net deposits over and above the level of lending. Firms look likely to have used lending to increase cash buffers, both to cover deferred liabilities such as VAT and rent and to prepare for any further shocks. Firms in certain sectors such as hospitality, which has been hit hardest by the pandemic, have received additional government
support in grants of up to £9,000 per premises. Support continues to be available to firms as restrictions are eased and economic activity rebounds.
Further temporary insolvency legislation and business support provided by the Government since the crisis began have resulted in fewer insolvencies than would normally be expected. Her Majesty’s Treasury is monitoring the impact that insolvencies will have on lenders’ balance sheets, which to date have remained largely resilient—backed of course by government action —and on their ability and willingness to lend to support economic recovery.
The noble Lord, Lord Sikka, raised some concerns about insolvency practitioner fees. In our view, it is right that insolvency practitioners are paid a fair rate for the work they do. The remuneration and expenses of insolvency office-holders are subject to the approval of creditors in each case and, of course, subject to the overall control of the court. Regulators have a statutory duty to encourage an independent and competitive insolvency profession that provides high-quality services at a fair and reasonable cost to the profession. Complaints about high levels of fees charged by an insolvency practitioner can be made through the Insolvency Service’s complaints gateway.
I was particularly grateful to my noble friend Lord Moylan for highlighting the many ways in which the Government have consistently supported business throughout the pandemic; he also made a number of very important points. He asked what the Government are doing to protect sole trader tenants and/or directors who have given personal guarantees against being made personally bankrupt by aggressive landlords; that is indeed a good point. As my noble friend will be aware, although the restrictions on insolvency proceedings were targeted at companies, the Government have put in place an unprecedented package of support to help the self-employed with their finances during the coronavirus pandemic; this includes the job retention scheme and the recovery loan scheme as well as a number of business support schemes operated by local authorities.
The Government recognise that many people are struggling financially due to the coronavirus. We have worked with mortgage lenders, credit providers and the Financial Conduct Authority to ensure that people can get and access the support that they need. We are also committed to helping people to access the necessary support to get their finances back on track. An extra £37.8 million has been made available to debt advice providers to support people in financial difficulty. I would always encourage businesses that have not been able to access support, or are not sure of the support available, to contact their nearest business growth hub. The Government have established a network of 38 of these hubs, with one in each local enterprise partnership area in England. Expert advisers can offer businesses of all sizes free, tailored, one-to-one guidance on areas such as business plans, building resilience and potential funding streams.
My noble friend asked why these temporary measures are not being extended for longer. The temporary measures can be extended by statutory instrument only for a maximum period, which was set down in the
original primary legislation; for the insolvency measures, that is a maximum of six months. However, recognising that these measures involve a significant intervention into the normal working of the insolvency regime, including affecting the rights of creditors, it is right that these measures are put in place only for as long as is necessary and that we keep them regularly under review. The Government will keep this matter under review in the light of ongoing developments during the pandemic, and we will move swiftly to extend them further if that proves necessary.
Turning to my noble friend’s questions about the measures that expired at the end of March, this was solely due to a relaxation of the requirement to hold annual general meetings physically. The provision was effective for a limited period and it was not possible to extend it beyond 5 April 2021. Where there remain concerns in the business community that holding general and annual general meetings post March 2021 would be problematic given continued uncertainty around coronavirus restrictions, officials are working closely with stakeholders as a matter of urgency to explore non-statutory approaches to address the challenges that might arise upon the expiration of the temporary provisions.
Turning to the question of how we avoid a so-called cliff edge when these measures expire, the Government recognise the risks of such a scenario involving the accumulation of unpaid debts becoming due when restrictions and government fiscal support expire. Work is ongoing to develop possible solutions to enable a viable exit from these measures; that continues to support business during the recovery phase.
Finally, I turn to the question of the Government’s approach to the mounting level of corporate debt in the economy. While many firms have been hit hard by the pandemic, HMG support has ensured that the corporate sector remained resilient, with the increase in indebtedness matched by an increase in net deposits. As I said earlier, firms in certain sectors, such as hospitality, have also received additional support through grants of £9,000 per premises.
Further temporary insolvency legislation and business support, provided by the Government since the Covid-19 crisis began, has resulted in far fewer insolvencies than would normally be expected; I outlined the figures earlier to my noble friend Lord Bourne. We continue to monitor the impact of insolvencies on lenders’ balance sheets; backed by government action, these have been largely resilient to date, as have lenders’ ability and willingness to lend to support economic recovery.
The noble Lord, Lord Lennie, asked about the scope for wider insolvency reform. I can tell him that the Government always keep the insolvency regime under review and, if any change is needed, we will not hesitate to bring forward the necessary legislation. These regulations will provide much-needed continued support for businesses as we continue with the Government’s four-step road map out of lockdown, allowing them to concentrate their best efforts on reopening or continuing to trade, and building on the foundations for our economic recovery in the United Kingdom. Careful consideration has been given to extending these temporary measures, and the Government will continue to monitor the situation extremely closely.
Once again, I thank all noble Lords who have contributed to this debate.